I have posted before about how the shrinking workforce tends to mask just how bad unemployment really is because people who have given up hope and stopped looking are not counted in the most widely cited calculation.

So the news yesterday that the unemployment rate held steady at 9.1% with zero net job growth actually is worse than it seems.

James Pethokoukis made the point in this tweet (h/t reader Charles):

Workers giving up hope, thereby keeping the unemployment rate artificially low, is keeping Obama’s reelection hopes alive. If the headlines screamed that unemployment was 11.4%, even I might begin to believe.

Comments

Reporting “percent unemployment” is a fraud. It starts with a survey, then they adjust it for time of year, various other ways of imparting spin. They know with an absolute certainty the number of W-2’s they get–that is the number they should report and is the one that matters.

I think you missed the Prof’s point. Once you are laid off you don’t get a W-2. That’s what he said, what happens to people who give up and are not measured. On the other hand Prof. the Labor Dept does release a number which covers the underutilization of labor in the U.S., it’s called the U-6 number and stands at 16.2% for August 2011. Unlike the media, a lot of us economic analysts believe that is the true unemployment rate. Not the old U-3, which is antiquated in a service economy.

I think you missed my point. W-2’s are a totally objective count of those employed. You lose your job–one less W2. Whether or not you are actually looking for work? Doesn’t matter–there is one less W-2.

The W3 count misses those off the books, of course. Of which, IMO, there are getting more every day. As the cost of employment on the books goes up, the relative advantage of being off the books gets greater. One day, we hit a tipping point.

It is a puzzle to me how the feds can know how many are unemployed voluntarily, have given up looking and have taken part time jobs. The only information about employees given to the feds are the quarterly employment reports employers have to file with the state and the W-2s at the end of the year. Neither one tells them someone is no longer employed. Their name is no longer on the list of the employment report and they do not get a W-2 or a reduced W-2. I doubt the feds analize each individual employee to see what happened. W-4s that are filled out when hired are kept with the employer unless the deductions are more than ten. I never had any of those. There is no way they can tell what the unemployment numbers are. I was a full charge bookkeeper for 40 years and I never during that time had contact with the feds about anybody being fired, quitting or retiring. How can they gauge unemployment with so many lay-offs, people graduating from schools and others retiring and or just leaving the workforce to start families? This is all guesswork pullled out of the air unless they have figured out a way of keeping tabs on all of us covertly. The unemployment rate of 9.1% is laughable. Look around you. Stores are practically empty. Roads have a lot less traffic. Rush hour is not what it used to be by a large margin. Homes are being foreclosed by the thousands. Deadbeats are causing some of these foreclosures but most are because people no longer have jobs and can’t pay their mortgages. I, for one, would like to know where they get their information to make these statements.

With the effort you took to write all that, you could have just Google searched “BLS unemployment methodology” and seen for yourself. It has nothing to do with W2’s. http://www.bls.gov/cps/cps_htgm.pdf

Good link, thank you. I trust government survey takers even less than private sector ones. Notice how the bad numbers (like the latest ones) are “unexpected” and last months numbers always seem to be adjusted in a negative direction? It is obvious that they spin the current month numbers in a positive direction, then bleed out the spin next month when no one is paying attention.

Just like the “inflation rate”; leave out everything that actually inflates.

I think David Plouffe took a lot of undeserved ridicule a month or so ago when he said that people don’t vote based on the unemployment statistics–People on the Right ridiculed him as if he said unemployment doesn’t matter, when what he really said was that the govt statistics don’t matter to voting behavior. I tend to agree with Plouffe and therefore this observation by Pethokoukis doesn’t bother me all that much.

People vote based on their situation, and that of their families, friends, relatives and communities. It matters very little to actual people who lost their jobs and cannot find work, whether they looked for work in the last month (in which case they count as in the workforce), or gave up for a while and didn’t actively look (in which case they have left the workforce for statistical purposes). Their voting behavior will be the same.

Only a relatively few people in the media and policy wonks (like me, I guess) really follow those statistics all that much and might vote on that basis.

Anyway, if you want the truth, or as close as you can get from statistics, ignore the rate and focus on private sector non-farm employment, hours worked, and average compensation. If more people are working more hours for higher compensation in the private sector (which pays the bills for govt, which is why I don’t count govt employment which can be temporarally goosed with borrowing, anyway) and the growth is above a 1% annualized rate (to account for population change) things are getting better. If not, not.

It’s a way of keeping the populace fat and happy, people don’t know the truth about the economy, the less likely they’ll be to get mad and toss the liars out. So we get false unemployment numbers, and false inflation numbers.

Just remember, food prices may be volatile, but the trend over time has always been up.

[…] day.And now, links!I’m quick to bash President Obama when he does something wrong (like, say, tout bad unemployment numbers as progress when the truth is worse than we know), and goodness knows I’ve done that quite a lot this […]